HUD 223(a)(7) Application Process and Timing

Processing

Section 223(a)(7) applications submitted by approved MAP lenders must be processed under MAP. Section 223(a)(7) applications are eligible for Multifamily Accelerated Processing (MAP). However, applications can also be submitted by non-MAP lenders through HUD’s TAP processing track.

In addition, lenders must submit an analysis that provides details regarding the sizing of the mortgage. This analysis must be consistent with HUD guidelines. Also, lenders must submit a Sources and Uses statement that is consistent with specified mortgage sizing calculations.

MAP: Multifamily Accelerated Processing

When sponsors work with MAP-approved lenders, the lender submits the required documentation and exhibits for a Firm Commitment application. This typically includes an underwriting package. Once submitted to the local Multifamily Regional or Satellite Office, the specific HUD office then reviews the application. HUD reviews factors like the borrower’s capabilities, the benefits to the project, and whether there is enough income to repay the loan after project expenses. If the proposed loan is approved, HUD issues a commitment to the lender.

TAP: Traditional Application Processing

Applications can also be submitted by non-MAP lenders. However, these must be processed by HUD field staff under TAP (Traditional Application Processing). In TAP, there is a single processing stage - firm commitment. In this stage, a HUD Regional or Satellite Office decides the amount of the mortgage based on a proposal for mortgage insurance. Once the proposal is approved, the appropriate office issues a commitment to the lender.

Timing

In general HUD 223(a)(7) loans close 60 days from application submission. HUD has an estimated 45-day review period for multifamily properties and an estimated 60 days for healthcare properties. However, each case is different and in some instances, it could take as long as 3 months to close. A typical timeline might be as follows:

Firm application is typically submitted to HUD within 30 days.

After HUD issues the firm commitment and rate lock, most HUD 223(a)(7) loans close in 45 to 60 days.

Yes, HUD 223(a)(7) loans typically allow prepayment. However, there is often a 0-2 year lockout period, during which the loan cannot be prepaid at all, followed by an 8-10% declining prepayment penalty. This means that the prepayment penalty will decline by 1% each year, starting after the lockout period ends.

Just like other HUD multifamily loans, HUD 223(a)(7) loans are fully assumable subject to FHA approval and a fee of 0.05% of the original FHA-insured loan amount. The fact that these loans are assumable can be a significant benefit to borrowers; especially those who want to sell their property after a few years. This is because having a new borrower assume the loan prevents the previous borrower from having to pay a prepayment penalty.

In general, the HUD 223(a)(7) loan program does not allow for cash out refinancing. Instead, the 223(a)(7) loan can only finance certain eligible costs, including 100% of the property’s existing mortgage, third-party reports, minor/moderate property repairs, replacement reserves, prepayment penalties (if the borrower is paying off their HUD multifamily loan early), and certain other costs. Borrowers who wish to get cash out from a multifamily property may wish to look towards other types of financing, such as a CMBS loan.

HUD 223(a)(7) loans require a HUD application fee (0.3% of the loan amount) which is due at application. Half of this is refunded after closing. Other fees and costs for the HUD 223(a)(7) program are usually capped at 2.0%.

Without a doubt, the HUD 223(a)(7) loan process is faster and has fewer hoops than other FHA/HUD products. The streamlined, affordable process does not require new third-party reports like appraisals, market studies, or environmental reports. In fact, most 223(a)(7) refinances only require a project capital needs assessment (PCNA).

The HUD 223(a)(7) refinance loan program can reduce interest rates, increase amortization, and improve cash flow while reducing the cost of debt service. It can even absorb prepayment penalty costs. On top of all that, it is one of the fastest, easiest, and most affordable multifamily or healthcare loans that you can get.